What happened
Cryptocurrencies are ending the week on an upbeat note, with many up by double-digit percentages as of mid-afternoon on Friday. Some of those gains come alongside the stock market's rise. The trends in crypto valuations in the last few months have become more correlated with the price movements of higher-risk growth stocks. But some of Friday's upward momentum could also stem from the possibility that Congress may give the crypto industry a boost.
As of 2:40 p.m. ET Friday, Dogecoin (DOGE -2.42%) had been up by as much as 6% in the prior 24 hours, Polkadot (DOT -0.72%) had been up by 10.4%, and The Sandbox (SAND -1.02%) had gained as much as 10.1%. The three cryptocurrencies were up by 5.6%, 9.7%, and 9.2%, respectively, in the last day at the time of this writing.
Image source: Getty Images.
So what
The biggest news in cryptocurrency this week is a bill introduced in Congress by U.S. Rep. Suzan DelBene (D-Washington) that would exempt crypto transactions under $200 from capital gains taxes. This would allow users to spend their tokens in the same ways that they use fiat currency, without having to pay capital gains taxes on them each time.
Lawmakers on Capitol Hill have been debating similar exemptions since at least 2017, but no bill of this type has made it to a vote. However, a growing number of people are involved in cryptocurrency, and using tokens can be extremely complex if every crypto transaction is subject to tax in the same way that traditional investments are.
Currently, even small transactions of a few dollars for goods and services in the real world are technically taxable in this way, and enforcement of those regulations could kill innovation in the crypto industry. Lawmakers are trying to balance how to build rules around cryptocurrencies and new products like NFTs that aren't quite currencies and aren't quite securities, and thus don't fit comfortably into the 100-year-old framework of securities regulations.
As I mentioned above, it also didn't hurt that the market was up on Friday, and that growth stocks, in particular, were rising. Cryptocurrencies now typically move somewhat in alignment with growth stocks as a class, but exaggerate their gains or losses, which helped their valuations Friday.
Now what
It's days like this that show both the volatility and promise of cryptocurrencies. Watching valuations can make a person crazy, but we are also getting to the point that the amount of money involved in the crypto market is too big for lawmakers and regulators to ignore.
If reasonable laws are put into place that allows crypto companies to innovate, it could actually cause a rush into the industry. There are new products being developed that could disrupt payments, ticketing, exclusive clubs, and much more. Businesses built around these digital products could flourish in the U.S. as China and Russia put restrictions on the industry.
Any hints about favorable regulatory moves in the U.S. often have positive impacts on crypto valuations. Hence why Rep. DelBene's bill -- along with the bounce in growth stocks -- was pushing Dogecoin, The Sandbox, and Polkadot higher.
